Verizon to set up streaming service with Redbox

LOS ANGELES _ Betting that a combination of Internet streaming and kiosk DVD rentals can give consumers the most complete package in a fractured media landscape, Redbox and Verizon are teaming on a movie rental service to launch in the second half of this year.

The still-unnamed business will challenge Netflix by offering a combination of streaming video on digital devices along with rentals from Redbox’s more than 35,000 kiosks for a flat monthly fee. The two companies believe that combining the two is the only way to give consumers a comprehensive selection of movies.

According to a regulatory filing by Redbox parent Coinstar, the joint venture will be owned 65 percent by Verizon and 35 percent by Coinstar. While full financial details were not immediately available, Coinstar is initially contributing $14 million for its stake, an amount expected to increase significantly as the joint venture’s capital needs increase.

Due to complex rights issues, Netflix’s streaming service offers a hodgepodge of older and independent films, as the rights to most new releases from major studios are controlled by pay cable networks like HBO for up to a decade after they appear in theaters.

Redbox’s kiosks offer newer movies on DVD and Blu-ray at grocery stores and other retail locations that the company says is a five-minute drive or less from more than 70 percent of Americans. But the machines carry only about 200 titles, a fraction of the number that can be offered on the Internet.

“Consumers who instantly want a new release can go to a kiosk and get it,” Paul Davis, chief executive of Coinstar Inc., said in an interview. “For titles that are a bit older, there will be streaming capability.”

Netflix also offers DVDs along with Internet streaming, but customers need to wait at least two days from the time they return one disc until they receive a new one. In addition, the company is attempting to wind down its DVD-by-mail service and transition all of its customers to streaming, while Redbox wants to keep its kiosk business strong for years to come.

Redbox said in late 2010 that it would work with a partner to move into the digital space and has been seeking a deal ever since. It settled on Verizon last year. The telecom giant will handle technical infrastructure and acquire digital content rights from studios. Both companies will market the service to their customer bases.

Redbox has more than 30 million active customers and Verizon has nearly 109 million wireless and nearly 9 million broadband customers.

Redbox had initially aimed to debut its digital offering in 2011, not late 2012. Together with Verizon it will enter a competitive landscape for digital movie rentals that includes not only Netflix, which has nearly 25 million subscribers, but Amazon.com and Wal-Mart’s Vudu.